DRFG: Local Internet Providers

Unity is Strength (and Quality). The Same Applies to Local Internet Providers.

Almost everyone has now become accustomed to using the Internet. While in larger cities there are no connection problems, getting connected in small municipalities is often a task for enthusiasts who offer a wi-fi connection to their neighbours. There are hundreds of these wi-fi providers across Czechia, but the trend is clear both here and in Western countries: consolidation into larger entities. It is beneficial both for providers, who may better invest in their development, and for customers, who will get a better connection quality.

We live in the Internet era and many of us can’t even imagine their lives without being connected. Having no connection is an even bigger problem outside large cities, which in most cases are not covered by the services of large telecommunications carriers. Therefore, people living in these areas need to rely on small firms providing wi-fi connections. However, even in this specific market segment big changes are under way.

As an example, we can mention the current acquisition made by Suntel Net, which is buying KeyNet, an Internet division of the NWT group. And while this may not be a massive purchase, it’s an indication of the slow, but sure consolidation taking place in the market of connection providers in small municipalities.

“The NWT group has transferred its division including employees, customers, contracts and assets to the Suntel Net group, which provides services in the field of electronic communications. We’re planning to reuse the proceeds from the sale for the development of industrially related services which will be aligned with our vision: to bring people the latest global technologies,” said David Vítek, the CEO of NWT, commenting on the transaction. And he added that they would invest mainly in improving the quality of customer services, ICT solutions, e-mobility, innovation and “new opportunities currently available on the market”.

As part of the DRFG Telco group, Suntel Net has been already for some time concentrating on smaller Moravian providers from which it wants to create a stronger player which will provide customers with quality services, at least in line with the standard available from their current small provider, with a prospect of making further service improvements and progress towards smart technologies.

Consolidation in South Moravia

Upon completion of the acquisition, Suntel Net will serve over 60,000 customers. However, its ambitions are even bigger.

“We are glad that we have been able to complete the acquisition of KeyNet from NWT’s portfolio, which is a significant step towards attaining our goal for this year: to surpass the 100,000 customer mark by the end of the year,“ adds Roman Řezníček, who is one of the investors of the Suntel Net project.

In South Moravia, there are currently about 200 “retail” Internet providers and it is actually necessary to divide them into two groups in terms of their size.

The number of customers of small providers does not exceed several thousands and in most cases they use a wi-fi wireless technology in the 2.4GHz and 5GHz unlicensed bands. Their sales are in the lower digits of millions of Czech crowns. And then there are large providers who control a substantial part of the local market, while at least a third of customers are connected over optical networks, with the rest relying on wi-fi.

As has been partly stated at the beginning, this trend will continue in the direction of further consolidation at both levels, which will result in the establishment of larger entities providing the Internet connection.

Consolidation is also actually underway among big carriers. As a glaring example we can mention the recent acquisition made by the carrier Vodafone, which has purchased Liberty Global, the UPC operator in Czechia (see the box below).

What Suntel Net is doing in South Moravia, is also happening in other parts of the Czech Republic. For example, in the region of South Bohemia, the market is being consolidated by the Starnet group of the entrepreneur Martin Ambrož.

“The current situation with a fragmented market is unsustainable for small companies mainly because of constant investment in technologies. I think that over the next few years numerous local Internet providers will be eventually gobbled up by bigger players,” Řezníček remarks.

Telecommunications Deal of the Year?

In May, the British telecommunications company Vodafone Group agreed to acquire the activities of Liberty Global, a cable TV and broadband service provider, in the Czech Republic, Germany, Hungary and Romania. Among other assets in Czechia and Slovakia, Liberty Global also owns the cable TV provider UPC. The price of the whole transaction will reach EUR 18.4bn.

We’re Following the Western Trend

In this respect, Czechia is following the trend prevailing in Western Europe. It is estimated that the local Internet providers have roughly a 50% share in the total revenues from connection, which is a total rarity in Europe. According to Statista.com, this share is around ten percent on average. For example, in the neighbouring Germany it is about eight percent.

A big role is played in this by technological progress and the growing customer expectations which go hand in hand with the increasing data consumption. For Internet providers, customer requirements for speed and stability of the Internet connection translate to the necessity of modernizing networks and investing into further development.

According to a survey conducted by AIM at the turn of this year, a low-quality Internet connection is the reason for moving to a different provider for up to 30 percent of Czech households.

With the growing stability of connections, customers may expect further expansion of service offerings. Probably the first service that comes to mind is IPTV, which is now already provided by big carriers. However, we are not far away from the time when service offerings will include solutions for the IoT (Internet of Things), which are considered to have great future prospects.

Transition to High-Speed Internet

Another technological milestone of the providers will be the transition to the 5th generation network which will offer a speed comparable to the connection over optical cables. This revolution will also involve the use of the 3.7 GHz band for wi-fi connections.

The above-mentioned Suntel Net takes steps in this direction together with the carrier Nordic Telecom, which is a co-investor of the project. Moreover, as opposed to the currently used standard wi-fi band, this new “triple-seven” technology is resistant to weather changes and offers better stability.

Considering that the current level of access to high-speed Internet (i.e. a speed that exceeds 30 Mb/s (editor’s note)) in Czechia is limited – even though it’s constantly improving – it is obvious that it is mainly the customers who will benefit from new technologies.

According to the Action Plan on the Development of Digital Market approved by the government, 100% of households should have high-speed Internet access by the year 2020. This requires significant investment in the development of networks in Czech regions. According to estimates, the connection improvements should apply to roughly 3.5 million spots across Czechia and the improvements should be felt not only by households, but also by public institutions and companies.

Real-Life Connection in Czechia is Mostly Slow

According to a measurement performed last year by Seznam.cz, the maximum Internet speed available to 80% of the Czech population does not exceed 10Mb/s, the reason being that a number of households are not capable of receiving faster connections. According to this measurement, the highest proportion of slow connections is in the Region of Pardubice (65% of all connections have the maximum speed not exceeding 5Mb/s) and then also in the regions of Liberec and Hradec Králové. Even in Prague, nearly 60% of the city’s residents actually connect at a speed lower than 5Mb/s. On the other hand, only 2.8% households in the capital city enjoy Internet speeds over 30Mb/s.